By Hayley Hitch, an Associate in Matthews Folbigg’s Insolvency, Restructuring and Debt Recovery Group.
The first step to take in recovering a debt is to establish who the debtor actually is and what type of entity the debtor is. Debts may be owed by various types of entities, including partnerships, companies, trustees of trusts, sole traders and individuals.
So what are the advantages and disadvantages of commencing proceedings verse issuing a statutory demand when recovering a debt from a company?
The benefits of commencing proceedings are having your claim considered by a court and being made aware of the debtor’s position in respect of your claim to recover a debt. Although it can be a costly process if the proceedings are defended, the court will make a determination in respect of your claim and when aware of the debtor’s position, this may allow for effective settlement negotiations to take place in order to settle the claim.
However if the proceedings are not defended, default judgment may be entered against the debtor, which is enforceable for a period of 12 years (as opposed to a standard debt that is only recoverable for 6 years from the date of issue). Therefore commencing proceedings and obtaining a favourable judgment can double the time to take steps to recover the debt.
On another option, a creditor’s statutory demand is a statutory form that a creditor may issue on a debtor company who owes a minimum debt of $2,000 to the creditor. The form is not filed with the Court but is required to be served on the debtor company. The creditor must take reasonable steps to bring the demand to the attention of the company.
A statutory demand is not intended to be used as a debt recovery method and is based on establishing a presumption that the debtor company is insolvent and should be placed into liquidation.
When issuing a statutory demand, it is important to consider whether the debtor may potentially claim that they have a genuine dispute in respect of the claimed debt or the statutory demand, or an offsetting claim. If they do, they may seek to apply to court to set aside the statutory demand.
However, if the debtor company fails to comply with the statutory demand by paying the debt or applying to set aside the demand within 21 days after service of the demand, the creditor would be at liberty to commence proceedings to apply to wind up the debtor company. If the order is made by the court, a liquidator would be appointed to the company and take steps to realise assets of the company in order to recover amounts to pay a dividend to creditors.
If you would like legal advice regarding debt recovery or any other insolvency issues, contact a Principal of the Matthews Folbigg Lawyers’ Insolvency, Restructuring & Debt Recovery Group:
Jeffrey Brown on (02) 9806 7446 or jeffreyb@matthewsfolbigg.com.au
Stephen Mullette on (02) 9806 7459 or stephenm@matthewsfolbigg.com.au.
